No concealment penalty on adoption of different GP rates

No penalty could be levied on the difference resulted due to adoption of different GP rates made on estimate basis

ABCAUS Case Law Citation:
ABCAUS 2723 (2019) (01) ITAT

Important Case Laws Cited/relied upon:
India vs. Dharamendra Textiles 306 ITR 277 ; CIT vs. Sangrur Vanaspati Mills Ltd (2008) 303 ITR 53 ; CIT verses Kailash crockery house (1999) 235 ITR 554 ; CIT verses metal products of India (1984) 150 ITR 714 ; CIT vs. Whitelene chemicals (2014) 360 ITR 385 ; CIT verses Raj Bans Singh (2005) 276 ITR 351; CIT verses Aero traders (2010) 322 ITR 316 ; CIT verses Modi industrial Corporation (2010) 195 Taxman 68 and CIT verses Vijay Kumar Jain (2010) 325 ITR 378 ; CIT verses Reliance Petro products (P) Ltd 322 ITR 158 ; CIT verses DCM Ltd Limited(2013) 359 ITR 0101

This appeal by the assessee was directed against the order of the Commissioner of Income Tax (Appeals)

The assessee was a company engaged in the business of transport of goods by hiring trucks and it had its own labour required for loading and unloading the goods on the trucks.

The assessment was complete under section 143(3) of the Income Tax Act, 1961 (the Act) by making certain additions including on account of trading additions relating to freight charges by enhancing the GP rate.

In the quantum appeal, the CIT(A) while appreciating the contentions raised by the assessee reduced the addition on account of freight charges by adopting a lower GP rate.

Subsequently learned Assessing Officer issued a notice initiating penalty proceedings under section 271(1) (c) of the Act stating that the assessee had concealed the taxable income and furnishing inaccurate particulars thereof and concluded the same by imposing the penalty under section 271(1)(c ) of the Act holding that to extent of the additions sustained by CIT(A), the assessee must be held to have concealed and furnished inaccurate particulars of income.

Aggrieved by this levy of penalty, assessee preferred an unsuccessful appeal before CIT(A) who by following the decision of the Hon’ble Supreme Court confirmed the penalty.

Vefore the Tribunal, the assessee submitted that the company had neither furnished inaccurate particulars of its income nor had concealed any income so as to attract the penal provisions of Section 271(1)(c) of the Act and the penalty sustained was liable to be cancelled in toto inasmuch as no satisfaction has been recorded in the assessment order while making addition with regard to application of gross profit in the books of accounts.

It was further contended that merely because of certain disallowance of expenditure, learned AO is not justified in making an addition without appreciating the fact whether or not there is concealment of income or furnishing of inaccurate particulars thereof.

The Tribunal observed that there was no dispute on facts. The Assessing Officer levied the penalty on the ground of the addition made on estimate basis and to the extent sustained by the CIT(A). The Tribunal opined that the fact remained that the enhancement or reduction of GP rate established that the same was merely on estimate basis and further the fact that the Assessing Officer estimated the same at 12% as against the 7.69% declared by the assessee and in spite of the fact that in the previous year it was only 9.14%.

It was noted that in the quantum appeal, the 1st appellate authority observed that considering the increase in sundry creditors liability, learned AO estimated the gross profit by applying the rate of 12% without citing any comparable case in the order in which the GP rate of 12% was declared.

The Tribunal further observed that on appreciation of the facts including the GP rate declared for the earlier years, the CIT(A) thought it fit to adopt the GP rate of 9% giving some margin for the increase in turnover and on that premise, the CIT(A) partly deleted the addition.

The Tribunal opined that this was subjective exercise done by the authorities and as a matter of fact, as rightly observed by the 1st appellate authority in the quantum appeal there was no basis for the AO to estimate the GP rate at 12%. At the same time the CIT(A) also sustained a portion of the addition by adopting the GP rate at 9% by making reference to the GP rate in the earlier years, increase in the sundry creditor or liability and also in the turnover.

The Tribunal stated that the circumstances suggested that the addition had no relation either to concealment of income or furnishing of inaccurate particulars thereof. In order to attract the provisions of Section 271(1)(c) of the Act there must be an allegation that there was concealment of income or furnishing of inaccurate particulars thereof.

The Tribunal held that no penalty could be levied on the difference resulted due to adoption of different GP rates made on estimate basis.

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